Pub. 1 2020 Issue 3

11 ISSUE 3 | 2020 need to know about the change and then make a mental note to “update the procedures someday.” That elusive “someday” often never materializes. We believe that each bank should have a formal procedures review at least annually, and for some areas, maybe more often. For many banks, the inadequate procedure manuals that they have will not offer sufficient information for anyone to complete a task correctly. Many banks have switched to imaging all files. The banks that have made that decision generally are in a little better shape for off-site work, as it is easier to send employees home and still get the work done in a timely manner. If your bank has not made the transition to electronic files, this may be your cue to consider the advantages of this technology. As the world becomes more electronic, and the cost of maintaining offices and buildings continues to increase, this may also be a time to reconsider the locations from which employees work. This may be especially critical if your brick and mortar buildings are getting close to capacity. Many tasks, with the right equipment and software, can easily be done from home, saving wear and tear on your building, perhaps reducing occupancy costs, and maybe, as a side benefit, resulting in happier and more productive employees. Regulators and COVID-19 Loan Modifications On March 22, 2020, all of the prudential banking regulators, along with other agencies, released the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. The full text can be found on many websites, however, the Federal Deposit Insurance Corporation (FDIC) has it at: https://www.fdic.gov/news/news/ press/2020/pr20038a.pdf The document states, “The agencies understand that this unique and evolving situation could pose temporary business disruptions and challenges that affect banks … businesses, borrowers and the economy. The agencies encourage financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. The agencies view loan modification programs as positive actions that can mitigate adverse effects on borrowers due to COVID-19. The agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (TDRs).” The agencies also offered comments on the issue of TDRs. They state that, “Modifications of loan terms do not automatically result in TDRs. The agencies have confirmed with staff of the Financial Accounting Standards Board (FASB) that short- term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.” Many banks have in place or are considering modifications to meet the needs of their customer base. It would appear that the regulators are going to react positively, provided the actions of the bank are reasonable and logical. The pronouncement states, “The agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs. Regardless of whether modifications result in loans that are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify the terms on existing loans to affected customers.” The pronouncement also discusses Past Due Reporting, Nonaccrual Status and Charge-offs, and Discount Window Eligibility. You should consult the Interagency Statement for details. When implementing your program to deal with this crisis, compliance cannot be ignored. Regulations that need to be considered include: • Regulation B (Equal Credit Opportunity Act) — This applies to both consumer and commercial loans. • Flood insurance regulations — If you extend maturity dates, a new determination may be required. This also applies to both consumer and commercial loans. • Regulation O (Loans to Insiders) — If anyone who is an “insider” is requesting payment or other forms of relief. • Regulation X (Real Estate Settlement Procedures Act) — You need to consider the impact of non-payment into required escrow accounts. CRA Credit Possible The Community Reinvestment Act (CRA), in part, requires banks to take good care of the credit needs in their communities. Keeping good records of exactly what you did during this crisis could certainly be shared with your CRA examiners at your next CRA examination. While it may not directly impact the examination, remember that the CRA rating is at least partly based on their opinion of your bank. The FDIC, Federal Reserve Board (FRB), and Office of the Comptroller of the Currency The Community Reinvestment Act (CRA), in part, requires banks to take good care of the credit needs in their communities. Keeping good records of exactly what you did during this crisis could certainly be shared with your CRA examiners at your next CRA examination Continued on page 12